Loading judgment…
Facts
The assessee did not file a return of income for AY 2018-19. Proceedings under Section 147 were initiated, and upon notice under Section 148, the assessee filed a return declaring Rs. 7,57,806. The AO observed the sale of land and building for Rs. 80 lakhs and initiated assessment proceedings. The AO disallowed the claimed cost of construction of Rs. 57,00,000, computed capital gain at Rs. 67,33,017, and assessed total income at Rs. 74,80,823.
Held
The Tribunal held that the Assessing Officer (AO) should have referred the matter to the Departmental Valuation Officer (DVO) for determining the fair market value of the construction cost when it was disputed. The failure to do so resulted in an arbitrary disallowance.
Key Issues
Whether the denial of deduction for the cost of construction under Section 48 for computing capital gains was justified without referring the matter to the DVO.
Sections Cited
147, 148, 48, 143(2), 142(1), 148, 149, 151
AI-generated summary — verify with the full judgment below
Before: SHRI INTURI RAMA RAO & SHRI SONJOY SARMA
Assessment Year: 2018-19 Ramla Hameed………….……………..…...………………..…..….……….Appellant Rajees Vihar, Vellakinar Ward, Alappuzha, Kerala – 688001. [PAN:AAXPH9394K] vs. ITO, Ward-2, Alappuzha…….…..….....................……........……...…..…..Respondent Appearances by: Shri Mathew Joseph, CA appeared on behalf of the assessee. Smt. Leena Lal, Sr DR, appeared on behalf of the Revenue. Date of concluding the hearing: June 05, 2025 Date of pronouncing the order: August 12, 2025 ORDER
Per Sonjoy Sarma, Judicial Member:
This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated24/03/2025, passed for the Assessment Year 2018– 19.
Brief Facts of the case are that the assessee did not file a return of income for the Assessment Year 2018–19. Based on information that the assessee had entered into substantial financial transactions during the year, proceedings under Section 147 of the Income-tax Act, 1961 (“the Act”) were initiated, and notice under Section 148 of the Act was issued. In response to the notice under Section 148, the assessee filed his return of income declaring total income of Rs. 7,57,806. During the course of assessment proceedings, the Assessing Officer observed that the assessee had sold land and a building for a consideration of 80 lakhs during the relevant year but had not offered the resultant capital gain to tax notice under section 143 (2) and 142 (1) of the act where issued, which were partially complied. Since assessee did not comply fully to the notice issued by the A.O therefore show cause notice was issued, and the assessee partially responded. On further enquiry, the Assessing Officer concluded that the assessee failed to substantiate the cost of construction claimed in the computation of capital gains and had not disclosed the sale transaction in the original return. The cost of construction claimed at Rs. 57,00,000 was not accepted, and the Assessing Officer computed the capital gain at Rs. 67,33,017, and assessed total income at Rs. 74,80,823.
Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), which was dismissed by upholding the action of the Assessing Officer.
Dissatisfied with the above order assessee is in appeal before this tribunal Before this tribunal, the assessee contended that the Ld CIT(A) erred in confirming the denial of deduction under Section 48 for the cost of construction of the residential house while computing capital gains. It is submitted that the assessee had purchased a plot of land and thereafter constructed a residential house on the said land without engaging any external contractor. The construction was self-managed and funded by the assessee. The assessee supported the cost of construction claim by furnishing a valuation certificate from a registered valuer estimating the construction cost at Rs.57,00,000/- .The assessee further argued that the valuation of the property by the Departmental Valuation Officer (DVO) was not obtained by the Assessing Officer before rejecting the claim. Hence, denial of cost of construction without referring the matter to the DVO was unjustified. The assessee also raised objections on the validity of reopening under Sections 148, 149, and 151 of the Act, alleging non-compliance with mandatory conditions.
The ld. DR relied on the orders of the lower authorities and submitted that the Assessing Officer had rightly rejected the unsubstantiated claim of the assessee in the absence of documentary support.
We have heard the rival submissions and perused the material available on record. The core issue involved in this appeal is the computation of capital gains arising from the sale of land and building and, more specifically, whether the cost of construction of the residential building, claimed at Rs.57,00,000, should be allowed as deduction under Section 48 of the Act. We find that the assessee had filed a valuation report from a registered valuer in support of the cost of construction. However, no reference was made by the Assessing Officer to the DVO for independent estimation of the cost, nor was any contrary valuation placed on record. In our considered opinion, once the cost of construction is disputed by the Assessing Officer, it is incumbent upon the Department to refer the matter to the DVO in order to determine the fair value. The failure to do so has resulted in an arbitrary disallowance of the cost claimed by the assessee. Accordingly, in the interest of justice, we deem it fit to restore the matter back to the file of the Assessing Officer with a direction to refer the property in question to the DVO for determination of the fair market value of the construction as on the relevant date, and thereafter recompute the capital gain in accordance with law. In view of the above, the appeal of the assessee is allowed for statistical purposes with the direction that the Assessing Officer shall obtain a DVO report on the construction cost and other related issues reframe the assessment after affording due opportunity to the assessee.
In terms of the above, the appeal of the assessee is allowed for statistical purpose.
12th August, 2025